Having a healthy cash flow isn’t just about earning an amount that is more than how much you spend. It isn’t about swimming on a pile of cash as well. A healthy cash flow is about making sure that you have the ability to handle new opportunities as they come without breaking the bank. Handling both short term and long term growth is an indicator of a healthy cash flow.
The Role of a Healthy Cash Flow in a Company’s Growth
Shareholders usually think that an enormous and uninterrupted growth is always a positive sign of growth. A lot of companies, most especially those in their early stages, could show superficial signs of growth, however, in a risky place. As a response, they tend to have a quick expansion, build vast offices, and employ a lot of employees with the intention of impressing investors. But despite showing growth in revenue, they eventually lose money. This was what the tech companies in the early days experienced as they behaved like they had unlimited money and operated without any solid business plan.
When a company operates on a negative cash flow, what they miss is the chance to grab on a genuinely profitable opportunity once it comes along. They resort to taking on more debt that eventually puts the company in an even more dangerous position. Investors would then eventually lose confidence on the company thinking that it has lost its agility (especially if there’s a competitor who can show the ability to jump on the said opportunity). But what is even more worrying about having a negative cash flow is that whenever there are unexpected challenges (the pandemic is a perfect example), the company would not have the ability to weather the storm.
Having a healthy cash flow allows you to have a prompt response to changing conditions and new opportunities, address unforeseen challenges, and take the risks essential to attain positive sum-growth. Lacking these abilities make it impossible for businesses to achieve a healthy and sustained growth.
While there’s no harm in staying within your company’s budgets (and not jump on all opportunities), the test of agility lies on having the autonomy to deviate from the set budget without causing unwarranted strain on the company’s health, people, and vision. The company stagnates when it lacks the ability to respond to unforeseen opportunity because of financial constraints (or when you have the means but you can’t afford not to get immediate return to any cash investment).
A Healthy Cash Flow = Improved Employee Engagement + Significant Business Growth
Maintaining a healthy financial relationship with both your customers / clients and suppliers / employees is a big factor towards achieving a healthy cash flow. The growth of a company does not merely rely on growing its own resources. Just like your need for your clients / customers to pay your invoices on time, your suppliers / employees also need to be confident that you are able to pay them also.
Companies also need to make sure that their employees have the confidence in the business’ solidity while showing that they are being taken cared of (by providing enough benefits and opportunities for them to grow within the company through training programs). A company who can prove they can do this despite trying times is a good sign that the company has a healthy cash flow. This is because a company that has a sensible plan in taking care of their employees (to show them how much they are valued) can achieve greater employee engagement, productivity, and job satisfaction that in turn result to significant growth in the business.
Tips on How to Have a Healthy Cash Flow and a Sustained Business Growth
We have listed here some tips that any organization can implement to sustain growth. These initiatives would help you see why having a healthy cash flow is the most essential element of all.
Choose the Right Technology (When Needed)
There’s a whole host of technologies available in the market that can be used for automation and simplifying processes. All offer the ability to improve the efficiency of your operations so you can better focus on higher-business values. Make sure your company takes advantage of this capability by choosing the one that fits the needs of your company. Be proactive in implementing this (rather than reactive) so when a crisis arises (just like in the case of the Covid-19 pandemic), your organization is fully-equipped with automation, collaboration, and if needed, remote-work infrastructure.
Take Care of Your Employees
When we say take care of your employees, it means making long term investments in them through fair compensation and valuable benefits and perks, giving them opportunities for job training and growth, recognize and reward them for their milestones and achievements, etc. Despite the money you spend on investing in your employees, it is still way less expensive to keep them than to find, hire, and train new employees every now and then.
Build a Firm Financial Relationships with Your Suppliers
It is important to have a dependable and loyal supply chain so you can delivery well to your current customers. This would also help you enter into new markets once you are ready for expansion.
Prepare for New Opportunities
As there’s no way that you can predict when the next big thing will happen for your business, you have to prepare for it. You have to be ready for any opportunity that would give you an unexpected growth.
Achieve a Positive and Healthy Cash Flow
We couldn’t emphasize more the importance of a positive and healthy cash flow as it is your only means towards achieving the abovementioned tips. You need to have the flexibility and freedom that would help you adapt to the ever-changing market conditions without the need of loans from banks or other investors.
In the process of improving your business’ cash flow using the abovementioned tips, you have to make sure that you are also making a sensible way of investing your money. Always work towards the growth of your revenue. And once you start making good revenue, it is then that you would attain a positive and healthy cash flow. This is when you would start with the cycle of a sustained company growth.
If you need to talk to an expert about how you can better manage your cash and an understanding of your overall position, feel free to consult with our team at Credo.
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